As ESG (Environmental, social and governance) issues move top of mind for business leaders in all sectors, the need to set clear ESG policies becomes paramount.
Any organization pursuing modern governance needs to prioritize ESG policies to operationalize their environmental, social and governance aims. But what are ESG policies? What should they look like, and what should they include?
What Is an ESG Policy?If your ESG strategy is the bedrock of your ESG ambition, your ESG policies are the building blocks you use to achieve it. Setting ESG goals is one thing; devising a strategy to achieve them another. But it's via your processes, procedures and policies that ESG is brought to life. As with any other area of business, policy management is vital to good governance.
ESG Policies and ESG FrameworksAlongside ESG policies, there is much talk of ESG frameworks. Are ESG policies and ESG frameworks the same? Not quite. ESG policy is the term used to describe your documented approach to ESG issues. The ESG framework tends to apply to reporting your ESG performance, referring to standardized frameworks like the Global Reporting Initiative, the United Nations Sustainable Development Goals (SDGs) and the Sustainability Accounting Standards Board (SASB)'s ESG standards.
Why Do You Need ESG Policies?
ESG, as a relatively recent addition to the business lexicon, may be lagging behind some other areas when it comes to setting, documenting and measuring compliance with corporate policy. But that's all the more reason to prioritize ESG policy setting.
A corporate ethos that prioritizes ESG is:
- Recognized as being the right thing to do
- Increasingly acknowledged as sound commercial sense, with investor pressures and trends towards ESG disclosures and risk scores setting the agenda
- In line with an increasingly ESG-focused business landscape
Today, ESG considerations drive investment decisions (sustainable investments now total $35.3 trillion, accounting for roughly a third of all global assets under management) and corporate direction. A dedicated strategy for tackling your ESG challenges and evidencing your progress is vital.
Organizational leaders know that vague aspirations and ill-defined aims don't lead to tangible success. You need to set clear and measurable objectives and put in place policies that define and guide the path to success.
What Should ESG Policies Include?Once an organization realizes the need for stated ESG policies, the question "How do I write an ESG policy?" swiftly follows. ESG is a broad concept, incorporating a wide range of considerations. When crafting your ESG policies, you might want to think about including policies around:
- Corporate use of pollutants, chemicals and renewable energy sources
- The carbon and sustainability reports you produce
- Increasing sustainability in your supply chain investment strategies; do you invest in businesses that support the climate agenda?
- Your approach to inclusion and diversity
- Pay and rewards policies, especially the hot topic of executive compensation
- Your impact on the communities in which you operate
- The diversity of your board
- How you mitigate supply chain risks
- Transparency around corporate reporting and engagement with voluntary ESG-related reporting like TCFD
- Documenting, monitoring and reporting on your governance, risk and compliance strategy
What Do Best Practice ESG Policies Look Like?There are several recognized best practices in policy management, and they can be applied to ESG policies as neatly as to any others. If you want to demonstrate best practice ESG policy management, you need to:
1. Set clear policies. A systematic and inclusive approach is the key here: involve the people responsible for managing the process in question and work through the stages involved to identify pain points and essential steps to capture.
2. Bring diverse views to the policy-making table. If your policy-makers are at risk of groupthink due to limited diversity, consider drawing on insights from individuals outside the group. It's valuable to bring individuals from various races, genders, sexual orientations, beliefs, cultures, socioeconomic stratum, etc. Here are two things you can do about it:
- Consider implementing reverse mentoring. On Berne Brown's Dare to Lead podcast, Patrice Gordon explains that, unlike the traditional setup, reverse mentoring is "a practice that sets up a junior team member, often a member of an underrepresented group, to mentor senior staff." Reverse mentoring can help your executives avoid groupthink and hear new perspectives to improve your ESG policies. However, this program isn't an alternative to building diverse boards. Instead, it should support your DEI goals and recruitment strategy.
- Consider your hiring processes. Does this usually happen through word-of-mouth or long-term acquaintances? Many people find they inadvertently hire people similar to themselves, reducing the diversity of thought. Broadening your network with diverse and talent-ready individuals can break this cycle and produce lasting change. The Director Network is a great way to take this next step.
3. Document your policies. This can be neglected, especially in start-ups or smaller enterprises, where the need for rigor in process and policy management can be under-estimated. Similarly, with newer concepts like ESG, organizations can be slow to capture policies in a formal document.
But if you want people to buy into and comply with your ESG policies, you need to ensure they are clearly understood, measurable and transparent. In terms of scope, they should include the types of issues outlined above, alongside any other ESG-related areas that are of particular relevance in your organization. For instance, if you work in a historically polluting sector, you may want to prioritize setting policies to address things that impact climate and communities.
4. Review and reassess policies regularly. ESG is a rapidly evolving construct; as your approaches, priorities and success measures advance, your stated policies should change in tandem. External regulatory and legislative imperatives are likely to develop at pace; your policies need regular reviews to keep track.
Take a Best Practice Approach to Corporate ESG Policies
Suppose the growing emphasis on environmental, social and governance concerns has led your organization to develop or upgrade its ESG policies. In that case, you will find Diligent's range of ESG resources an excellent place to build your knowledge base.
In our ESG hub, we cover:
- The evolving definition of ESG as it varies depending on the audience (we cover the differences for investors, corporates, governments and society)
- ESG investing
- The benefits of ESG software
- The board's role in setting the strategy and overseeing ESG policies
- Access to insightful ESG articles, relevant podcast episodes and further resources